Market sentiment improves, AUD staves off break below 0.70

Daily Currency Update

The Australian dollar edged marginally higher through trade on Monday, bouncing off supports at 0.70 US cents as investors looked to unwind some of Friday’s risk off move. Market sentiment improved following reports that suggest the Omicron variant, while bypassing the protections afforded by our current vaccines, will not foster a severe immune response and illness as is the case with other more virulent COVID 19 strains. Initial anecdotal date appears encouraging; however, we anticipate price action will remain whippy over the coming days and weeks as sentiment shifts ahead of any real scientific evidence and data analysis as to the effects this latest mutation. Commodity prices recovered through Monday, lead by a 35 surge in Oil, dragging the CAD and AUD higher on the day. Added support came on the back of the Peoples Bank of China policy update. As expected, the PBOC opted to cut the reserve ratio requirement, opening up accommodative monetary policy conditions while highlighting its support for the commercial building market. Having touched intraday highs at 0.7055 overnight the AUD leveled off into this morning’s open, bouncing between 0.7040 and the daily high. Our attentions turn now to the RBA and its last policy update for the year. We expect few surprises with policy makers likely to maintain the current policy platform. Another dovish assessment could add further pressure downward on the AUD.

Key Movers

A positive risk backdrop helped fuel gains across risk assets and commodity currencies on Monday, driving the JPY and CHF toward the bottom of the leader board as the worst performing majors to start the week. The USD has rebounded back above 113.50 against the Yen while the Pound enjoyed incremental gains, staving off a break below 1.32 and the Euro continues to underperform. Market sentiment remains whippy and volatility indices elevated, the VIX volatility index trading near 30% it s highest level in 6 months highlights just how nervous investors are. Elevated volatility means larger price swings and we expect currency values will fluctuate wildly over the coming days and weeks as we await clear evidence this latest COVID 19 variant will not disrupt the recovery.  Our attentions today turn to the RBA monetary policy update, while US and Chinese trade data and German industrial production dominate the macroeconomic ticket.

Expected Ranges

• AUD/USD: 0.6980 – 0.7130 ▲
• AUD/EUR: 0.6180 – 0.6330 ▲
• GBP/AUD: 1.8650 – 1.8930 ▼
• AUD/NZD: 1.0350 – 1.0520 ▲
• AUD/CAD: 0.8950 – 0.9030 ▲